Will an Obama administration get the federal-state partnership back on track?

Many state Medicaid directors say the federal-state partnership has never been worse, due in part to proposed regulations from the Centers for Medicare & Medicaid Services (CMS) that would shift costs to states. States report a lack of cooperation for virtually every aspect of the program, from waivers to state plan amendments.

According to Kentucky's Medicaid commissioner Elizabeth Johnson, "Kentucky feels no different than most other states - that the federal-state partnership is strained."

Ms. Johnson says the federal government is requiring more from state Medicaid programs, when there is already additional pressure due to the economic downturn. States are being required to take on more financial responsibility, she says, and state programs are being subjected to additional oversight, audits, and reporting requirements.

"Additionally, the most recent proposed regulations by CMS will place additional financial and administrative burdens on the states," says Ms. Johnson.

So will the new administration improve this situation for state Medicaid directors? "The hope is that the change in administration will be a positive change," says Edwin Park, a senior fellow in the health policy department at the Center on Budget and Policy Priorities in Washington, DC. "Over the short term, the Obama administration has been working with leaders on the Hill on economic stimulus legislation."

Many states are hoping for a temporary increase in the federal Medicaid matching rates, which would allow them to absorb higher Medicaid enrollments, and also relieve the overall pressure on state budgets.

"States are facing deficits as revenues plummet," says Mr. Park. "With a temporary increase in the federal Medicaid matching rates, they will be able to avoiding making spending cuts or implementing tax increases, both of which would deepen the recession by scaling back state economic activity."

In the long run, he says, the hope is that there will be more support from the federal government to encourage states to take up health reform efforts and various expansions.

According to Medicaid spokeswoman, Mary Kahn, the Bush administration "has given states unprecedented flexibility in managing their Medicaid programs. The Deficit Reduction Act gives states freedom to redesign benefits packages to best meet the needs of their enrollees while keeping the program on sound financial footing."

Mr. Park says he expects that the incoming administration will quickly withdraw the Aug. 17 guidance that the Bush administration had issued, which essentially barred states from expanding their State Children's Health Insurance Programs (SCHIP) above 250% of the federal poverty level.

"And in other cases, the Bush administration has made it more difficult for states to expand, or encouraged them to expand, only in certain ways that the administration thought were preferable," says Mr. Park. "It's unclear what the specifics of the new administration will be, but I think they will be more interested in encouraging states instead of standing in the way."

One ongoing concern with the current administration was that one state would apply for a waiver and get certain favorable terms, while other states would apply for something similar and the rules of the game would not be the same. "I think there is some hope that there could be a more uniform treatment of states, as opposed to some states being treated differently than others," he says.

States need support now

Fiscal relief, however, is the "No. 1 focus" for state Medicaid directors who want to see an economic stimulus package enacted quickly, says Mr. Park. The hope is that the federal government will step in to provide additional support for state Medicaid programs, which are under a lot of stress.

"There are increasing signs that there will be significant midyear cuts, as well as cuts proposed for the upcoming state fiscal year, which usually starts on July 1. We are looking at deficits of well over $200 billion dollars, for both the current year 2009 and 2010, and even beyond," he reports. "A very large fiscal relief package is essential to preserve state services, including Medicaid."

Previous downturns have shown that even when an economy recovers, state budgets typically don't come back into balance until well after the economic recovery is under way. "From a state budget perspective, it's a lagging indicator," says Mr. Park. "So, these budget deficits could be facing states for some time."

States were able to recover to some degree from the previous economic downturn and were able to invest in their rainy-day funds. "But many of those rainy-day funds have been drawn down, and one-time savings have been exhausted," he notes. "It is certainly not looking very good right now."

David S. Parrella, director of medical care administration for the Connecticut Department of Social Services, says that he would look for the Obama administration to work on some "quick victories in health care to build momentum for wider reform." These would include reauthorizing SCHIP with broad state flexibility, such as coverage of children up to 300% FPL, possibly lowering the eligibility age for Medicare from 65 to 55 to help the states with the cost of their aged, blind, and disabled population, and making noncategorical single adults Medicaid-eligible up to 100% of FPL.

"This last initiative would essentially 'buy out' our state-administered general assistance program and other state programs to cover the noncategorical population," he says. "These are some examples of how the federal government could relieve hard-pressed states and improve health care access and services for individuals."

Expansions on hold?

In 2007, states were taking "really unprecedented action to move forward" with expansion programs, according to Robin Rudowitz, a principal policy analyst for the Kaiser Family Foundation's Kaiser Commission on Medicaid and the Uninsured. "It was the most advancement we had seen since the enactment of the SCHIP program."

Many states had proposals or were adopting new plans to expand coverage to reach additional uninsured. These ranged from proposals for large-scale health reform like California's, to targeting children, to efforts to simplify enrollment. "So, there were a whole host of efforts around that," she reports. "In 2008, states were still moving in that direction. But how far they can go to accomplish those goals and continue along that path has certainly been hindered by the current economic situation, for a lot of states."

Another factor is what will happen with SCHIP reauthorization. "Some states, like North Carolina, had passed legislation to expand that was somewhat contingent on additional dollars being available for SCHIP reauthorization," says Ms. Rudowitz. "There is a movement to get additional health care coverage, but we are not going to get there with every state taking their own action. You really do need some type of federal action to really get to something like universal coverage."

As for states taking steps toward universal coverage, Mr. Park says he thinks it's a "definite concern" as to whether they can go ahead with their plans. "Massachusetts is going ahead-they just got their waiver renewed, which helps fund their coverage plan. But a number of states interested in pursuing coverage might not do so because of budget problems," he says.

Mr. Park adds that some states may reconsider their larger, broader health reform plans in anticipation of potential federal action in 2009. "I think another factor is that a number of states had strongly considered or even enacted expansions for children's coverage, but a number of states were obstructed from moving forward because of President Bush's Aug. 17 guidance," he points out. "States were unable to get approval for expansions that their legislatures had enacted and their governors had signed into law. And that was before the budget shortfall started to get increasingly serious."

Over the longer term, Mr. Park says the way health reform is structured could bring down costs throughout the U.S. health care system. This, in turn, would bring savings to Medicaid programs in the states.

"If you adjust for health status, Medicaid actually costs less than private insurance for individuals. But what is really driving Medicaid costs is not necessarily enrollment, but overall health care costs throughout the U.S.," he explains. "If you have broader health reform that includes coverage expansion so you don't have cost shifts, as well as broader cost containment that would relieve pressure on state Medicaid programs, that could stabilize state budgets."

Mr. Park says cost containment, as well as achieving higher quality and expanding coverage, is an essential component of any reform effort. "We are spending more on a per-capita basis than other countries for the same quality, and in some cases for lower quality," he says. "States are already being economical, especially considering the populations that are served under Medicaid, which tend to be in much poorer health than the private insurance market. Tamping down health care costs in a smart way would relieve pressure on states."

Contact Mr. Park at (202) 408-1080 or park@cbpp.org, Ms. Rudowitz at (202) 347-5270 or RobinR@kff.org, and Mr. Parrella at (860) 424-5219 or David.Parrella@ct.gov.